Editing Porter's generic strategies (section)

==Differentiation strategy==
Businesses operating this strategy differentiate their products/services in some way in order to compete successfully. Examples of the successful use of a differentiation strategy are Hero, Asian Paints, HUL, Nike athletic shoes (image and brand mark), BMW Group Automobiles, [[Perstorp Group|Perstorp]] BioProducts, [[Apple Computer]] (product's design), and [[Mercedes-Benz]] automobiles.

A differentiation strategy is appropriate where the target customer segment is not price-sensitive, the market is competitive or saturated, customers have very specific needs which are possibly under-served, and the firm has unique resources and capabilities which enable it to satisfy these needs in ways that are difficult to copy. These could include patents or other intellectual property (IP), unique technical expertise (e.g. Apple's design skills or [[Pixar]]'s animation prowess), talented personnel (e.g. a sports team's star players or a brokerage firm's star traders), or innovative processes. Successful differentiation is displayed when a company accomplishes either a premium price for the product or service, increased revenue per unit, or the consumers' loyalty to purchase the company's product or service (brand loyalty). Differentiation drives profitability when the added price of the product outweighs the added expense to acquire the product or service but is ineffective when its uniqueness is easily replicated by its competitors.<ref>{{cite book|last=Gamble|first=Arthur A. Thompson Jr., A.J. Strickland III, John E.|title=Crafting and executing strategy : the quest for competitive advantage : concepts and cases|date=2010|publisher=McGraw-Hill/Irwin|location=Boston|isbn=9780073530420|page=[https://archive.org/details/craftingexecutin00thom_0/page/149 149]|edition=17th|url-access=registration|url=https://archive.org/details/craftingexecutin00thom_0/page/149}}</ref> Successful brand management also results in perceived uniqueness even when the physical product is the same as competitors. This way, Chiquita was able to brand bananas, Starbucks could brand coffee, and Nike could brand sneakers. Fashion brands rely heavily on this form of image differentiation.

Differentiation strategy is not suitable for small companies. It is more appropriate for big companies to apply differentiation in any one or several of the functional groups (finance, purchase, marketing, inventory etc.).<ref name=wright /> This point is critical. For example, GE uses its finance division to differentiate itself. A company may do so in isolation of other strategies or in conjunction with focus strategies (requires more initial investment).<ref name=wright /> It provides a great advantage to use a differentiation strategy (for big companies)  in conjunction with focus cost strategies  or focus differentiation strategies. Coca-Cola and Royal Crown beverages are good examples of this.

[[Henry Mintzberg]], another business writer, argues that cost leadership is really a form of differentiation, using a lower price as a form of differentiation.<ref>Datta, Y., [https://www.davidpublisher.com/Public/uploads/Contribute/5563f0411247b.pdf A critique of Porter’s cost leadership and differentiation strategies], in ''Chinese Business Review'', Volume 9, No.4 (Serial No.82), April 2010, accessed on 23 April 2025</ref>

===Variants on the differentiation strategy===
The '''shareholder value model''' holds that the timing of the use of specialized knowledge can create a differentiation advantage as long as the knowledge remains unique.<ref>William E. Fruhan, Jr., "The NPV Model of Strategy—The Shareholder Value Model", in Financial Strategy: Studies in the Creation, Transfer, and Destruction of Shareholder Value (Homewood, IL: Richard D. Irwin, 1979)</ref> This model suggests that customers buy products or services from an organization to have access to its unique knowledge. The advantage is static, rather than dynamic, because the purchase is a one-time event.

The '''unlimited resources model''' utilizes competitors by practicing a differentiation strategy. An organization with greater resources can manage risk and sustain profits more easily than one with fewer resources. This provides a short-term advantage only. If a firm lacks the capacity for continual innovation, it will not sustain its competitive position over time.